Another batch of US inflation data has me pondering: what is next for the economy?
July's Consumer Price Index checked in at 0.2%, right in line with expectations, which is a very mild pick-up following June's 0.1% decline. Stepping back, inflation is up 2.9 percent over the past year, only just below the consensus expectation for 3 percent growth.
These numbers paint an interesting picture of where we stand economically. The core CPI, which strips out volatile food and energy prices, also rose 0.2% last month. This is viewed by most people as a better measure of the underlying trends in inflation.
Though inflation now stands at double the Fed's target, there are increasing expectations that the Federal Reserve will go ahead with cutting interest rates at its September meeting. Indeed, markets show a zero probability that the Fed will leave rates as they are, 5.25%-5.50%. It does seem to be a question of 25 or 50 basis points.
The Fed has been raising rates aggressively to fight inflation, so to see a cut would be quite a shift in monetary policy. That could have implications reaching across everything from the mortgage rate to the stock market's performance.
This indeed drew my attention to how the price of Bitcoin behaved after the CPI report. It continued its modest upward trend by hovering around $61,200. This resilience in the face of economic data goes on to show exactly how crypto markets are increasingly intertwined with traditional financial indicators.
Looking ahead, I watch out for upcoming economic reports, which will include claims and retail sales data due soon. These figures may then further give a hint about the general economy and warp the Fed's decision-making one way or the other.
The annual Jackson Hole symposium of the Federal Reserve, scheduled for the end of August, will be another event.
Historically, Fed chairs did use this platform to signal major policy shifts. Any hints dropped at this year's meeting, against such an economic climate, should prove particularly significant.
Such a possible pivot in Fed policy may come at an interesting time.
Inflation has been cooling from its peak but remains above the Fed's 2% target. The labor market is rather strong, while recession fears quicken. Reconciling those two surely poses a challenge before policymakers.
I'm more concerned about how a rate cut might impact different sectors of the economy. Lower rates could light a fire under housing market activity and perhaps reignite business investment, though it's also likely to spur consumer spending that might have upward pressure on prices.
Another level of complications comes from the global economic context. The central banks around the world have nearly faced the same forces of inflation, and probably what the Fed does is going to make an impact on monetary policy decisions elsewhere.